Personal advice on HEI vs HEL
I'm weighing my options between a traditional home equity loan and a home equity investment through Point. I know typically the traditional HEL is better and I have great credit but in my particular situation I am uncertain the best option. I'll layout the relevant financial details first then explain the situation.
Home value: approx. $320,000
Mortgage: $170,000 left with 26 years remaining at about 5.25% ($1680/mo with escrow)
Personal loan: $23,000 ($590/mo)
HEL details: $75,000 > $71,000 after closing and fees. $680/mo for 20 years at 9.1% ($23,000 goes to wipe out personal loan leaving me with $48,000 for work on the house. This would cost about $88,000 in interest over the 20 year loan. (I realize these terms are not phenomenal for a 730+ but the loan to value and the term played a large role)
I haven't totally run the HEI stuff yet only used the quick estimator on the Point site so I don't have exact numbers. The cash out amount would be approximately $63,000 leaving me $40,000 to work on the house. I would pay off the personal loan and apply the $600/mo savings to my existing mortgage. The calculated net savings on my 30 year mortgage would be approximately $82,000 and be paid off 14 years earlier. If I wait 4 years to start the extra $600 when the personal loan would be paid off the net savings would be $59,000 so the total savings here is $23,000.
As you can see there is about $111,000 swing in the HEI's favor based on the Interest I would have paid for the HEL and the interest on the original mortgage I would have paid otherwise. Also having no required payment is a huge buffer in the event that you lose a job or something. The ability to not pay that extra $680 in a pinch could prove extremely useful in a bad situation.
The one down side is that I plan to do substantial upgrades with this money and I do them myself so the return on investment is high. I live in a very nice small village, my property was in rough shape when I got it, it will be in nice shape when I sell it so the final cost of the HEI could balloon on me.
I am kind of leaning towards the HEI still. I know it will probably cost more in the long run but the $170,000 of saved interest will hopefully offset a decent amount it. We plan to sell in about 12-14 years when the kids finish high school. The HEI could end up being very costly at the end but I still wonder if it would be worth it due to the having substantially more financial security over the next decade while we raise the kids.
Any thoughts, suggestions, insights, or advice would be greatly appreciated. I'm pretty good at most subjects but finance isn't exactly my specialty.
Edit: forgot to include additional $600 payments after personal loan would be paid off to make it a more fair comparison for the HEL.